Until early in the 20th century, gold played a central role in the world of money. Gold had an incredible run — almost three thousand years. And why not? After all, Professor Roy Jastram convincingly documents in The Golden Constant just how gold maintains its purchasing power over long periods of time.
But, since President Richard Nixon closed the gold window in August 1971, gold has not played a formal role in the international monetary regime. Today, the “regime” is characterized by many as a chaotic non-system. In the past decade, gold prices have surged and there have been noises in some quarters that gold’s formal role should be re-established in the sphere of international money. Nobelist Robert Mundell has gone so far as to predict that “Gold will be part of the structure of the international monetary system in the twenty-first century.”
Automatic Currency Boards versus Central Banks
Gold-based currency boards could transform Professor Mundell’s prediction into a reality. Currency boards have existed in more than 70 countries and a number are still in operation today. Countries with such monetary institutions have experienced more fiscal discipline, superior price stability, and higher growth rates than comparable countries with central banks. An orthodox currency board is a monetary institution that issues notes and coins (some currency boards have, however, also accepted deposits).
Gold-based currency boards could transform Professor Mundell’s prediction into a reality. Currency boards have existed in more than 70 countries and a number are still in operation today. Countries with such monetary institutions have experienced more fiscal discipline, superior price stability, and higher growth rates than comparable countries with central banks. An orthodox currency board is a monetary institution that issues notes and coins (some currency boards have, however, also accepted deposits).
Its monetary liabilities are freely convertible into a reserve currency (also called the anchor currency) at a fixed rate on demand. The reserve currency is a convertible foreign currency or a commodity chosen for its expected stability. For reserves, such a currency board holds low-risk, interest-earning securities and other assets payable in the reserve currency. Its reserves equal 100 percent or slightly more of its notes and coins in circulation, as set by law.
No comments:
Post a Comment